Follow Up

BofA, Wells Top Fed's Approval List

The two big lenders—and their shareholders—look like they got the best deals in the central bank's annual capital planning reviews. And, although Dick's Sporting Goods misjudged January's weather and fans' disappointment with Lance Armstrong, its long-term strategy is sound.

The results underscored the improvement in bank-capital positions and profitability in the past two years, which was predicted in a bullish Barron's industry cover story ("Buy the Banks," Oct. 17, 2011).

Bank of America (ticker: BAC) got approval for a $5 billion stock buyback—which could retire nearly 4% of its shares over the next 12 months—and the ability to retire $5.5 billion of high-cost preferred stock. Deutsche Bank analyst Matt O'Connor said the buyback was a "positive surprise" in a client note—he had anticipated a total closer to $2 billion. (The details for six leading banks appear in the table.)

The Fed permitted Wells Fargo (WFC) to boost its quarterly dividend to 30 cents a share from 25 cents, plus an increase in its share buyback relative to 2012, when it repurchased almost $4 billion. The dividend increase, lifting the yield to 3.2%, was better than expected.

Citigroup got what little it asked—a $1.2 billion share buyback. Its quarterly dividend will remain at just a penny a share. The good news is that Citi should rapidly build capital with such a modest buyback and minimal dividend.

Dick's (ticker: DKS) fell 10% on Monday to $45 before recovering to $47 by Friday. The shares are off 4% since Barron's argued the retailer was a good bet to gain market share as it opens stores countrywide ("A Long-Distance Runner," Feb. 25).

We think long-term investors should use the opportunity to snap up shares, because the retailer should regain its footing pretty quickly. Dick's trades for 14 times its forward earnings estimate, below historical levels. Its balance sheet is strong, gross margins are expected to increase a bit, and earnings are forecast to rise 13% this year, to $2.86 a share.

"The long-term story is intact," says Brian Lazorishak of
Chase Mid-Cap Growth
Fund (CHAMX), who sees the stock in the high-50s by year's end.

Fourth-quarter earnings were $1.03 a share, slightly below consensus. Dick's curtailed orders of cold-winter gear, but January's freeze left the company short of merchandise. Customers also reportedly spurned Armstrong's LiveStrong elliptical and treadmill brands after the cyclist admitted to steroid use. LiveStrong generates more than 50% of equipment sales.

Displeasing as they are, these missteps are forgivable. Dick's still aims to open 1,100 stores. Better to keep an eye on how that race goes.